I feel like it is time to try and do an update on the valuation of Moviepass. With Helios and Matheson looking to spin off Moviepass into a separate operating company, and a new strategy being announced this and a nice little bump in the stock today, why not take a fresh look at what a realistic valuation for an independent Moviepass might look like.
Before going into the technical valuation talk, lets start with Ted Farnsworth, if he is the CEO or even chairman of the BOD for the new Moviepass venture – all bets are off. Farnsworth has proven he is a bad bet for stockholders. Wall Street does not trust him, but even worse, he has proven to be totally incompetent in managing a public company, multiple times. Farnsworth is toxic to shareholders, and if he turns out to be the lead dog in the new MoviePass spinoff, all bets are off. The likelihood of Farnsworth burning shareholders with a new reverse split and further ATM type dilution would be a risk not worth taking. I would urge all readers to avoid or sell whatever stock you may have if Farnsworth is CEO. If he is simply on the board, that may be OK. If he is chairman of the board, I would say it is still too risky. Farnsworth is worse than worthless. He’s reckless, dangerous and totally unfit to run a public company.
Conversely, if Mitch Lowe is named CEO and or Chairman of the board, I would view that as a strong positive. Lowe is a good leader, who got mixed up with bad company in Farnsworth.
The other big caveat in doing an evaluation of value for Moviepass is the company has been less than stellar in sharing details on their business. Nobody knows how many subscribers are left standing after the meltdown of service and the shedding of those pesky Costco unlimited customers. There is no clarity on revenue created from the Films business or from Moviefone, so really it is guess work to get to these valuations, and I am going to be conservative and offer a value range.
So now onto valuation of Moviepass outside of HMNY. I think the only way to look at valuation of the new Moviepass company is by looking at the value of the parts, and then giving some valuation to the synergies, brand and goodwill of the company. The use of the word goodwill here is interesting given the checkered past of Moviepass, but from an accounting perspective at least, they do have some goodwill!
The three core piece parts of the business are 1) Subscription Platform 2) Moviepass EFO Films 3) Moviefone. Lets take them one by one.
The subscription platform. I have created a simple conservative view of my subscription model here. If you don’t want to look at all the math and spreadsheets, here’s my quick summary. I am estimating a conservative and big hit to the subscriber base. My model puts the number around 400,000 subscribers this quarter. This is a guess and I don’t have a lot to go on other than A list from AMC definitely took away a lot of customers, Cinemark CEO is on record saying that Moviepass has dropped from single digit ticket sales to under 1% now, and if you follow social media groups you see and hear a lot of people saying they are quitting the service or planning to when their year-long subscription is over. I could be wildly off here, (and it is a quick and dirty crude model) but without any guidance from the company whatsoever, all signs point toward a drastically lower subscriber number. I estimate ARPU to build to $15 given the new plans with higher prices. I believe the plan mix will look something like 40% Select, 40% All Access, 20% Red Carpet. I estimate the utilization rate to go to about 1. I take it up slowly and think it could go higher as people step up to the more expensive plans. With limited options on the Select plan, I see some decent throttling capabilities on utilization. All told I see the subscription business close to breakeven – maybe even a small gross margin. I think with the reductions in staff – particularly the VP level people – and the closing of the LA office we will see a decent reduction in SG&A to around $5.5 Million a month – It could be even lower. I see revenue around $15-$16 Million on a quarterly run rate basis. That would make for a $60 – $70 Million yearly run rate. Potentially higher if they can start growing subs again. There are a lot of different ways to value a business like this. If they do manage to squeeze a bit of cash flow out of it, it would be worth a lot more. But we don’t know if they can. I am going to estimate that they are basically at breakeven on the subscription business. Given that I value this at a range of $45-75 Million.
Moviepass Films/ EFO I think this business is not worth very much at all. Content businesses can be very valuable, but EFO has a shaky track record. Their hit rate is low. Movie content creation is essentially a portfolio business. You win some you lose some. EFO loses on too many bad films. I estimate that the films business is worth slightly less than what Farnsworth ultimately paid for it, which turned out to be around $7 Million dollars. I am going to range the value of the Joint Venture at about that. Meaning I think the total value of MP Films is around $14 Million. MP Films gets half of that.
Moviefone. I see very low value for Moviefone, they are essentially running Google Ads on the site now. The audience rankings are weak. Moviepass killed their phone app. I will be generous here and leave a $1 Million price tag on the asset. Moviepass paid that in cash, and put up $14 Million in stock that turned out to be worthless for Verizon. Since then Verizon has all be killed off the Oath effort that was supposedly going to deliver sales capabilities. I put value at $1 Million. It’s not worthless, but it is nothing to get very excited about either.
Sum of the parts – brand & Goodwill I have written about the value of a brand and the incredible cost associated with building a well-known brand that has a lot of interest. Even if the brand is bad, it has value. Potentially significant value. I am estimating the value of the Moviepass name and brand at a very conservative $5-$10 Million valuation. This is seriously discounted based on the damage the company did to the brand over the last year. Had they not faceplanted with consumers I would value the brand much much higher. While I believe there is some value to be derived from synergies and other goodwill of the business, I think that value is already baked into the other valuations of the 3 core businesses. I would say Moviepass has to prove that their strategy of synergy of the core business really delivers some results before I could honestly give any real value for
Total Valuation – Adding it all up I come up with what I think is a reasonably conservative valuation range of total valuation to $63 to $95 Million. Well above the $24.6 Million Market Cap of Today’s closing.
I am confident that there is significant upside to this valuation if Farnsworth is taken out of the picture, if the subscriber base is significantly higher than my estimates, and if the cash burn is better than predicted.